Malta Finance Minis­ter’s Statement

Author: | Published: 19 Oct 2018
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Malta continues to be one of the best economic performers in Europe. Economic growth remains robust, with real GDP expanding by 6.4% in 2017, up from 5.2% in the previous year. Growth was primarily driven by net exports, though private consumption also continued to support aggregate demand. Extending recent trends, a diverse range of services – including tourism, professional services and remote gaming – supported the increase in activity. Both manufacturing and construction contributed to economic expansion, though to a much smaller degree.

This buoyant economic performance was reflected in labour market outcomes. Employment went up by 3.4% last year, while the unemployment rate fell to record lows. Increased participation rates and continued inflows of foreign workers mitigated labour supply constraints and dampened upward pressures on wages. Indeed, with wages broadly keeping pace with productivity, unit labour costs were stable. Although price pressures picked up during the year, they remained contained from a historical perspective. The annual rate of inflation, based on the Harmonised Index of Consumer Prices, accelerated from 0.9% in 2016 to 1.3% in 2017.

Against this positive backdrop, the surplus on the budget balance widened to the equivalent of 3.9% of GDP. A healthy primary surplus, falling interest expenditures and rapid growth in nominal GDP all combined to reduce the general government debt to 50.8% of GDP. Malta also registered a positive external balance, with the current account of the balance of payments running a surplus for the sixth consecutive year.

Looking ahead, economic growth is projected to slow down in the years to come, trending downwards to around 4.5% by 2021. Over the coming years, the Government continues to target a budget surplus, allowing for further reductions in the public debt. In turn, this will favour the creation of the leeway necessary to allow the use of fiscal policy as a countercyclical tool if needed.

Within this overall fiscal strategy, the Government intends to focus its capital spending on addressing infrastructural bottlenecks that inevitably arise in the wake of rapid economic growth. Particular attention will be given to transport, housing and waste management. Given the importance of the provision of cross-border services to the Maltese economy, another policy priority is to strengthen supervisory institutions and to effectively counter money laundering, fraud and tax evasion. While expenditure reviews have led to substantial savings on recurrent expenditure, tax rebates aimed at low to middle-income households will ensure that the benefits of economic growth will be more widely shared.

Risks to this benign economic situation stem mainly from abroad. Given that Malta is a very small, extremely open economy, the Maltese Government is especially concerned about the rise in protectionist sentiment worldwide. This would have a negative impact on trade and growth, which could jeopardise the increases in global living standards that many have enjoyed.